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3 High Earnings-Yield Stocks

- By Alberto Abaterusso

Investors may want to consider securities that, as of Tuesday, are beating 20-year high-quality market corporate bond yields by at least 100%. This increases the chances of unearthing value.

The bonds represent corporate loans issued by triple-A, double-A and single-A rated companies, which means they are unlikely to have financial problems. The Federal Reserve Bank of St. Louis indicated that the monthly average spot rate of the 20-year bond is 4.38%.


Thus, since the earnings yield is the inverse of the price-earnings ratio, the following stocks are trading for less than 11.42 times earnings as of Tuesday.

What's more? These companies also benefit from a strong financial situation and have a buy recommendation rating on Wall Street, with a price target that anticipates more than 40% stock appreciation within 52 weeks. By contrast, the S&P 500 index, a benchmark for the U.S. stock market, is expected to decline 3.1% over the same span of time from the closing price on Tuesday.

The first company is Contura Energy Inc. (CTRA), a Bristol, Tennessee-based metallurgical and thermal coal producer and distributor to the U.S. and international customers.

Shares were trading around $59.24 at close on Tuesday for a market capitalization of $1.13 billion. The stock has an earnings yield of 39.4% versus the industry median of 7.8% and a price-earnings ratio of 2.54 versus the industry median of 12.82.

The stock also has a price-sales ratio of 0.33 compared to the industry median of 1.28 and an EV-Ebitda ratio of 5.90 versus the industry median of 7.79.

GuruFocus assigned a rating of 6 out of 10 for financial strength and of 5 out of 10 for profitability and growth of the company.

Wall Street issued an average price target of $94.33 per share of Contura Energy Inc.

The stock has declined nearly 10% so far this year, underperforming the S&P 500 index by 25%. The closing price on Tuesday fell within a 52-week range of $53.22 to $81.

The Peter Lynch chart suggests that the stock is cheap.

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The second company is Enerplus Corp. (ERF), a Canadian oil and gas production and exploration company.

The share price was $8.3 at close on Tuesday for a market capitalization of $1.98 billion. The stock has an earnings yield of 13.6% versus the industry median of 8.5% and a price-earnings ratio of 7.33 versus the industry median of 11.83.

Further, Enerplus Corp. has a price-sales ratio of 1.80 compared to the industry median of 2.73 and an EV-Ebitda ratio of 3.65 versus the industry median of 7.99.

GuruFocus assigned a rating of 6 out of 10 for both the financial strength and for the profitability and growth of the company.

Wall Street issued an average target price of $17.45 per share of Enerplus Corp.

The stock has gained nearly 7% year to date but is underperforming the S&P 500 index by 8%. The 52-week range is $6.84 to $13.87.

According to the Peter Lynch chart, the stock seems inexpensive.

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The third company is Methode Electronics Inc. (MEI). Based in Chicago, the company produces and markets electronic components worldwide.

Shares closed at $29.07 on Tuesday with a market capitalization of roughly $1.08 billion. The stock has an earnings yield of 9.8% versus the industry median of 6% and a price-earnings ratio of 10.24 versus the industry median of 16.75.

Other ratios indicate that the stock has a price-book ratio of 1.56 versus the industry median of 1.47 and a price-sales ratio of 1.15 compared to the industry median of 0.98.

GuruFocus assigned a rating of 6 out of 10 for both the financial strength rating and for the profitability and growth of the company.

Wall Street issued an average target price of $42 per share of Methode Electronics Inc.

So far this year, the stock has climbed 24.8%, outperforming the S&P 500 index by nearly 10%. The closing price on Tuesday fell within a 52-week range of $20.99 to $45.45.

The Peter Lynch chart indicates that the stock is trading cheaply.

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Disclosure: I have no positions in any securities mentioned.

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This article first appeared on GuruFocus.